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In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. [ 1 ] [ 2 ] Sunk costs are contrasted with prospective costs , which are future costs that may be avoided if action is taken. [ 3 ]
Escalation of commitment, irrational escalation, or sunk cost fallacy, where people justify increased investment in a decision, based on the cumulative prior investment, despite new evidence suggesting that the decision was probably wrong. G. I. Joe fallacy, the tendency to think that knowing about cognitive bias is enough to overcome it. [65]
Confirmation bias can also lead to escalation of commitment as individuals are then less likely to recognize the negative results of their decisions. [7] On the other hand, if the results are recognized, they can be blamed on unforeseeable events occurring during the course of the project. The effect of sunk costs is often seen escalating ...
Forget about how much time or money you've invested
“The sunk-cost fallacy refers to the tendency humans have to continue investing in a failing endeavor even when the costs and commitment spent outweigh the benefits,” explains Sarah Kelleher ...
Alamy There are some economic terms most of us know and understand, such as supply and demand. And there are other terms we will probably never even run across, like implicit logrolling and a ...
Gambler's fallacy (aka sunk cost bias), the failure to reset one's expectations based on one's current situation. For example, refusing to pay again to purchase a replacement for a lost ticket to a desired entertainment, or, refusing to sell a sizable long stock position in a rapidly falling market.
This is a symptom of a sunk-cost fallacy — a cognitive bias that occurs when decisionmakers persist in committing resources to a cause despite clear suboptimal outcomes. When they fall into this ...